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“Economics is haunted by more fallacies than any other study known to man.” – Henry Hazlitt, Economics In One Lesson, p. 15

The great Henry Hazlitt’s wise words came to mind while reading a recent New York Timespost by George Mason economist Tyler Cowen. Fresh off of his unfortunate assertion (one that Hazlitt would have had a field day with) from a few years ago that economic growth has become difficult to achieve, Cowen strangely observed that “The world just hasn’t had that much warfare lately, at least not by historical standards,” and “Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely.”

They're ultimately only words, but Cowen's about war theoretically boosting animal spirits are pretty disturbing ones, and that’s truly saying something when we consider past mutterings from the economics professor about a supposed lack of “low-hanging fruit” rendering future growth a distant object. The only happy thing to take from Cowen’s promotion of war as a possible stimulant is that college students generally tune out their professors if the voting patterns of the electorate are to be believed. In Cowen’s case he allegedly swings right, is even said to self-identify as a libertarian, but his post from June 13th speaks to an academic experiencing an evolution of the worst kind.

In Cowen’s defense, he hasn’t completely gone over the edge about the alleged virtues of war. As he explains, any new insights on his part aren’t meant to “claim that fighting wars improves economies, as of course the actual conflict brings death and destruction.” Yes, wars certainly are wealth and life destroyers, and it reminds us of something that's very odd about an economics profession populated by individuals who almost all believe that World War II ended the Great Depression.

About the above belief, nothing could be more logically false. To think that World War II ended the Great Depression is to believe that growth can be achieved by killing one’s best customers around the world.

To believe that war is stimulative is to turn the genius of Adam Smith on its head, and naively assert that the human capital which drives all advancement doesn’t matter; that greater prosperity can be achieved by sending the young and energetic off to foreign lands so that they can be maimed, and too often killed. Supposedly this is more stimulative than is keeping them at home so that they can produce for their fellow man.

To believe that war is stimulative is to presume that free trade and the intense specialization that it brings us is irrelevant to growth; that we’re instead made better off when conflict to varying degrees erects barriers to the global division of labor. Rather than producing in concert with fellow economic actors around the world, all of us doing what we’re comparatively best at, during war Smith’s proverbial pin factories are often shrunk in favor of autarkic production; much of it meant to destroy rather than create wealth.

To believe that war redounds to economic growth is to presume that during times of economic hardship we should dynamite cities around the U.S. so that politicians can pay people with money taxed and borrowed away from the productive to rebuild all the wealth that was destroyed. It also presumes that we should actively court conflict with an eye on putting soldiers in harm’s way globally and defense contractors to work domestically.

Lastly, to think that World War II ended the Great Depression is to blindly assume that once the war ended, and government spending plummeted, that the U.S. economy sank into the mother of all recessions. In fact, the U.S. economy soared after the war as the government spending burden shrank, and an energetic generation returned to endeavors amounting to real wealth creation over destruction of same.

World War II decidedly did not end the Great Depression, and the fact that most economists believe it did arguably indicts this modern version of astrology more than any other worthless belief (think “quantitative easing,” GDP itself, the oxymoron that is “government stimulus”) emanating from a profession most useful to investment forecasters (at Goldman Sachs clients would call to find out what the economists were thinking, then bet the other way) as a contrarian indicator of what’s actually happening in the economies they comically presume to “measure.” What ended the Great Depression, and to Cowen’s credit he alluded to it with his comment that the possibility of war can at least lead politicians to “liberaliz[ing] the economy,” is that by 1938 the New Deal essentially ended after having failed miserably in the eyes of Republicans and Democrats alike.

With the New Deal’s end, and it can be argued that FDR stopped his meddling fully aware that war was coming and the economy would need to be on the rebound to pay for it, economic growth took off. Explicit in the view broadly held by economists about WWII and the Depression is that governments have resources, and that excessive federal spending was the driver of our economic rebound. Of course this amounts to fraudulent double counting that doesn’t stand up to the most basic of scrutiny. First the taxable growth took place, and with increased revenues extracted from the private sector, the federal government was only then able to successfully pay for and fight World War II. First the growth, then the war.

English: American economist Tyler Cowen (Photo credit: Wikipedia)

But to clarify Cowen’s views to readers, he writes that “the very possibility of war focuses the attention of governments on getting some basic decisions right – whether investing in science or simply liberalizing the economy.” His first example is laughable, and his second easily disprovable.

Government spending on science presumes that politicians can better allocate capital than can private actors operating under market discipline. To believe what Cowen is offering up, the lack of a war threat today is depriving Harry Reid, Mitch McConnell, Nancy Pelosi and John Boehner of the opportunity to expertly invest the money of others in the killing machines of the future; the knowledge gained from those investments eventually migrating to commercial ideas that would boost growth. You can’t make this up. Cowen is serious.

As for the notion that countries somehow need the threat of war to achieve great scientific advances, or better yet, liberalize their economies, apparently Switzerland, Hong Kong, and New Zealand (among many others) didn’t get Cowen’s comical memo. With all three, no credible voice in modern times has argued that either faced war or imminent attack that would have “focused” the attention of their politicians on the way to economy-boosting liberalization, or, if Cowen is to be believed, political advancement of “technological invention” and greater “internal social order” supposedly needed for major expansion.

Indeed, what all three remind us, and it’s something seemingly lost on Cowen, is that economic growth is really very simple. We all have myriad wants and needs, our production is our demand, so when governments remove the barriers to production, the individuals who comprise any economy tend to thrive. Thinking about the U.S. economy with the latter in mind, our economy is presently limp not because we lack some national, war-mongering purpose (apparently Cowen forgot all the national initiatives of the 20th century that robbed the world of well over 100 million people), but precisely because our political class has violated the four basics (taxes, regulation, trade, and money) to economic growth.